Analysis: Soaring costs of 'rescuing' Iraq

(This is the first installment of United Press International's seven-part series on the U.S. presence in Iraq.)

WASHINGTON, July 31 (UPI) -- The liberation of Iraq was to have been the war that paid for itself in spades, and gave U.S. corporations the inside track on the greatest energy bonanza of the 21st century. Instead, it has become a fiscal nightmare, a monetary Vietnam that already accounts for around 15 percent of the U.S. annual budget deficit, a figure likely to only grow remorselessly into the unforeseeable future.

The unforeseen cost of the war is already attracting powerful and influential critics, most worryingly to U.S. President George W. Bush, from within the GOP itself.

On July 26, Republican Sen. Richard Lugar of Indiana, chairman of the Senate Foreign Relations Committee, told National Public Radio that rebuilding Iraq is certain to cost U.S. taxpayers tens of billions of dollars over the next few years. He estimated the rebuilding costs alone at $30 billion.

"But they do not wish to discuss that," he said.

In financial terms, it should have been a sure thing. The Energy Information Administration records that Iraq is believed to have the second-largest reserves of high quality, easily accessible oil in the world: more than 112 billion barrels.

In the run up to this year's Iraq war, conferences and studies commissioned by hawkish conservative think tanks in Washington debated and prepared models for privatization of the Iraqi oil industry with, of course, major U.S. participation.

A Heritage Foundation study by Ariel Cohen and Gerald O'Driscoll argued, "The Bush administration should provide leadership and guidance for the future Iraqi government ... (including) a massive, orderly and transparent privatization of state-owned enterprises, especially the restructuring and privatization of the oil sector."

Commented John B. Judis in The New Republic Jan. 20, "The study has been well-received by administration neo-conservatives."

And according to reports by Jamie Dettmer in Insight magazine and Judis in The New Republic, Eliott Abrams, now senior director for Near East and North African Affairs on the National Security Council, even authored a proposal in December calling for U.S. rather than U.N. management of Iraq's oil fields after U.S. conquest (or liberation) and occupation.

Neo-conservative pundits with equal faith and fervor argued that Iraqi oil revenues would finance the country's own reconstruction after the war and that they could even be used to offset some U.S. military operating costs, surely a cheap price to pay for liberating the Iraqi people from the terrible yoke of President Saddam Hussein?

But it hasn't worked out that way.

The cost of the war itself exceed previous public projections from the office of the Secretary of Defense. At an April 16 news conference, Pentagon comptroller Dov Zakheim acknowledged that the cost of the war to that point came to $10 billion-$12 billion. But the cost of returning troops to base would be another $5 billion-$7 billion, plus another $9 billion for the 3-1/2 weeks of combat operations, bringing the total cost at that point to between $24 billion-$28 billion.

Since then, the continued cost of occupying Iraq and of the continued pacification and counter-guerrilla operations mounted there has been widely estimated at around $1 billion a week.

Combining these two figures -- the Pentagon's own admitted costs of the war and the generally accepted cost of occupation operations, the costofwar.com Web site has estimated the cost of the war for the fiscal year after it took place at $76 billion.

Costofwar.com also notes interest rates on the $1-billion-a-week occupation costs will make them $1.5 billion a week, or $78 billion per year. And even that figure may prove optimistic, as it assumes larger numbers of U.S. troops will not be required and the current levels of violence against U.S. forces will not escalate either.

The federal budget deficit for the coming year has been projected by the Bush administration's own Office for the Management of the Budget at $455 billion: the largest in history. That means the Iraq war and its consequences alone will comprise 15.5 percent of the annual federal deficit at a time when it is larger, and rising faster, than ever before. Far from being a windfall to the U.S. economy, the Iraq war has already proven itself to be a ball and chain around the economy's neck.

What happened to the vast oil production bonanza that was going to flow from Iraq? It hasn't happened and quite possibly never will. No one doubts the oil is there. But what the war planners and energy strategists never factored into their considerations was that, far from welcoming the U.S. Army and Marines as their liberators, the Iraqis -- Sunni and Shiite alike -- might resent any continued U.S. military occupation and very quickly make it too hot to handle, which is exactly what has happened.

The Pentagon hawks and their favorite energy strategists also turned out to have no strategy for rebuilding Iraq or maintaining security in the oil fields and pipelines running from them.

First, they assumed an almost bloodless march to Baghdad instead of three weeks of high-speed and utterly successful, but still heavy, fighting. Collateral damage to oil facilities was considerably greater than anticipated.

Second, and far more important, the grand strategy, insofar as there was one, anticipated an orderly takeover of occupation duties by an undersized U.S. military force that could rapidly be half evacuated. This plan ignored the warnings of Army Chief of Staff Gen. Eric Shinseki that hundreds of thousands of U.S. troops would be needed to ensure security in Iraq, including the security necessary to rebuild and operate the country's oil industry.

Deputy Defense Secretary Paul Wolfowitz even hung Shinseki out to dry publicly for making this estimate. But since then he has had to swallow crow.

Wolfowitz and even his gung-ho boss, Defense Secretary Donald Rumsfeld, have been forced to acknowledge that at least 200,000 U.S. troops, or more than a quarter of the standing strength of the U.S. Army, will be needed to occupy Iraq for the foreseeable future. And that kind of presence costs money: currently $1 billion a week.

So far, no significant amounts of Iraqi oil have been produced for world markets since the war ended. Therefore Iraqi oil exports, which were running at 2.6 million to 2.8 million barrels per day before the war began in March, have now further dropped.

The complete failure of two successive U.S. administrators in Baghdad to restore security, order and basic services to Iraq is a major reason why this has not happened.

The administration, indeed, has been unable to even recruit any significant number of volunteers from conservative think tanks or the federal government to volunteer to work in Iraq for the next year or two, so the occupation administration there remains seriously undermanned.

But there is a second reason that is in large part a consequence of the first -- U.S. planners never anticipated the rapid emergence of nationwide guerrilla war against the U.S. occupation, which is already costing up to one U.S. soldier killed per day. And as part of this guerrilla war, sabotage operations against oil pipelines are already widespread.

Even with 150,000 U.S. troops in Iraq, they are spread far too thinly to aggressively fight the guerrilla war, lock down Iraq's borders with Iran and Syria and protect the oil facilities and pipelines at the same time. Furthermore, the troops currently deployed are not trained in police tactics.

Pentagon officers speaking on condition of anonymity to United Press International have said at least twice the current manpower -- 300,000 U.S. or allied troops -- may be necessary to do this.

In the meantime, the supposed "macro-economic" benefit of "liberating" Iraqi oil for the world market not only has not happened, precisely the opposite has occurred. Iraq is now in far-worse position to export either crude or refined oil to the world markets. As a result, the continuing effect of the war has been to strengthen the market position of the three leading global producers, Saudi Arabia, Russia and Iran, while keeping global energy prices relatively high and thereby adding a further burden to the U.S. annual balance of trade deficit, already by far the largest of any country in world history.

And even if Iraqi oil finally starts to flow under optimum conditions, the total amount of revenue realistically projected from it would do no more than balance the already horrendous costs of the U.S. occupation.

John Cassidy made the relevant calculations in the July 14 issue of The New Yorker. He wrote: "Assuming that oil prices hover around twenty-five dollars a barrel, which is in the middle of OPEC's target range (twenty-two to twenty-eight dollars a barrel), a resurgent Iraqi oil industry producing six million barrels of oil a day for export would generate about fifty-five billion dollars a year in revenues."

But the cost to the United States of occupying Iraq is already running at between $52 billion to $78 billion a year on the U.S. government's own projections. And even if none of that $55 billion went to offset the costs of U.S. occupation, divided among the 30 million people of Iraq, it comes to, as Cassidy wrote "about five dollars per person per day -- enough to place Iraq above the World Bank's global poverty line of two dollars a day, but not by very much."

This is hardly a region-transforming bonanza.

Yet so confident were Office of the Secretary of Defense planners and their neo-conservative allies of the coming oil bonanza from Iraq that they openly advocated using it, as Judis wrote in The New Republic "to remake the Middle East in our democratic, capitalist image by leveraging Iraqi oil production to undermine Saudi dominance in the region and, perhaps, to destroy OPEC itself."

Instead, the escalating woes of Iraq and the soaring costs of the war look likely to boost the Organization of Petroleum Exporting Countries and, by imposing huge additional budgetary strains on the United States at the worst possible time, weaken democracy and capitalism back in the United States itself.

United Press International is a leading provider of news, photos and information to millions of readers around the globe via UPI.com and its licensing services.

With a history of reliable reporting dating back to 1907, today’s UPI is a credible source for the most important stories of the day, continually updated - a one-stop site for U.S. and world news, as well as entertainment, trends, science, health and stunning photography. UPI also provides insightful reports on key topics of geopolitical importance, including energy and security.

A Spanish version of the site reaches millions of readers in Latin America and beyond.

UPI was founded in 1907 by E.W. Scripps as the United Press (UP). It became known as UPI when after a merger with the International News Service in 1958, which was founded in 1909 by William Randolph Hearst. Today, UPI is owned by News World Communications.